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I’ve considered whether MIGA guarantees are, in effect, governance products. Readers might rightly ask how I’ve come to this conclusion. Consider what a governance product is: something that supports good governance (and by this we mean, first and foremost, eliminating corruption and its incentives). Thus, could not a MIGA guarantee be recognized as a governance product from two perspectives—that of the company that is our guarantee holder and that of the country host to a MIGA-insured investment?

In our most recent World Investment and Political Riskreport, the companies MIGA surveyed noted that political risk was their top concern over the next three years when investing in emerging markets. When we asked how companies mitigate political risk, the use of political risk insurance ranks ninth, after such tactics as “use of joint venture or alliance with local company,” “engagement with local communities”, and—of interest for this blog—“engagement with government in host country” and “developing close relationships with political leaders.” Indeed, “government engagement” can take a multitude of forms, including some that are less appealing than others in countries where government institutions are weak.

When a company chooses to guarantee its investment with MIGA, the company manages, transparently and at an explicit cost, the various non-commercial risks it is facing. Of course, the wise company will still need to engage the government and other groups such as civil society in order to ensure it has a valid social license to operate.

Transparency is unavoidable as MIGA discloses its intention to guarantee an investment on the homepage of its website and does so again when a contract of guarantee is signed. Companies can and do use that public knowledge to their advantage (for instance, informing investors when they are listed) to demonstrate that they conduct business transparently and sustainably in emerging markets.

Similarly, governments may inherit a situation whereby risk perceptions are heightened due to previous governments’ actions, or by the fact the country belongs to a region that has or has experienced problems. Here it is important to note that MIGA is unable to insure any investment without having formal host country approval. This means that the host country government—without needing to provide a counter indemnity or use its own financial capacity—is making a statement as to (i) its awareness of the investment, (ii) its congruence with the government’s development objectives, (iii) its intention not to take any politically-motivated actions against the investment, and (iv) its intention to fulfill any obligations it may have toward the investment.

Just like the investor, the government can leverage MIGA’s public disclosure and use it externally to its advantage to attract interested investors, and internally, to signal to its own administration that this particular investment is covered by MIGA and should be treated fairly and transparently.

And here we have it: from at least two perspectives, MIGA’s political risk insurance—by its nature and process—is a governance product. In its way, MIGA, as a trusted bridge between the private and public sectors, bolsters the World Bank Group’s efforts toward more transparency, less corruption, and public accountability in pursuit of better development outcomes.